Senator REYNOLDS (Western Australia) (10:27): I too rise today to speak on the Defence Amendment (Fair Pay for Members of the ADF) Bill 2014. On 1 December last year, I rose in this place to speak on the initial ADF pay offer of 1.5 per cent per annum. At that time, I noted the budget constraints and the need to make tough decisions in today's fiscal environment, but I also noted the requirement to ensure it was a fair and reasonable outcome in the circumstances. Earlier this month, after quiet but persistent lobbying by me and many of my coalition colleagues, a fair and reasonable offer was proposed to the minister.

Senator REYNOLDS: Thank you very much, Mr Acting Deputy President. Earlier this month, after quiet lobbying by me and my coalition colleagues, a fair and reasonable offer was proposed to the minister, and subsequently the government announced that it had recommended the Defence Force Remuneration Tribunal increase the pay offer to two per cent annum.

Initially, I would like to commend Senator Lambie's intent, and I support the sentiment that she shows behind this bill. While we certainly have different styles and approaches, I have absolutely no doubt that both of us want what is in the best interests of those who serve in uniform and the families who serve in partnership with them.

The first duty of any federal government is to protect the nation. The Australian Defence Force fulfils this responsibility on behalf of us all. Every single year, our service men and women reconfirm their availability and their readiness to deploy on operations and put their lives in harm's way in service of our country and of all Australians. Military service, in this fundamental respect, is unique.

For their part, Australians accept the moral obligation to preserve the physical, mental and spiritual wellbeing of our men and women in uniform and their families, who make their service to our nation possible. The government of the day is custodian of this covenant or moral obligation on behalf of all Australians. We have this moral obligation not only to our uniformed personnel but also to their families.

ADF personnel are not public servants. Their roles differ substantially from those of public servants, and their roles are unique. The contribution they make to us all is unique. No-one I know—and no-one I have ever met in 29 years in the Army—serves our nation for the pay, but pay and conditions must always be fair. Our moral obligation to our men and women in uniform goes much further than simply pay and conditions. Our reciprocal obligation is to ensure that those who serve are as safe and prepared as they can be. This means not only in pay and conditions but also in ensuring the best possible equipment, training, health, housing and other support for their families and themselves are provided to them. Senator Bernardi has listed these in great detail. It is entirely appropriate and right that the employment conditions of the ADF uniformed personnel are handled very differently from public servants, because ADF personnel are not public servants.

I would like to address some of the deep concerns I have with this bill and its unintended consequences. One of the underpinning provisions of the explanatory memorandum of this bill states:

The members of the ADF have their pay assessed arbitrarily by the Minister of Defence (the Minister) under section 58B of the Defence Act 1903.

I argue that this entire premise underpinning the bill is not correct. The Minister for Defence does not make determinations on ADF pay. In fact, under the act, this power is reserved specifically to the Defence Force Remuneration Tribunal, the DFRT, pursuant to section 58H(2)(a) of the Defence Act.

Unlike what is said in the explanatory memorandum, the powers of the minister in relation to ADF remuneration, under section 58(B) of the Defence Act, relate to determinations regarding conditions of service for ADF members other than salary—that is, not pay. These determinations in the past have included housing benefits, relocation support, leave entitlements, the Abbott government's rollout of the ADF Family Health Program and a range of other non-salary related allowances.

In fact, the Hawke government, in the Defence Legislation Amendment Act 1984 established a Defence Force Remuneration Tribunal, which comprises three independent members: the vice president of Fair Work Australia, a person experienced in industrial relations matters and a person who has been a member of the ADF. This is a fundamental and critical fact that this bill has ignored and therefore renders it invalid.

The DFRT was established by Labor to ensure that all decisions and determinations made in relation to ADF pay are relevant to the contemporary roles and living and working environments of personnel serving in the ADF. This is a 30-year precedent—established by the Labor Party—which has worked very well until now. The DFRT determinations are to be made taking into account the special skills and capabilities required of ADF members and their unique employment circumstances. Last year, the DFRT determination was to offer a 1.5 per cent pay increase and was made with these considerations in mind.

In the aftermath of the decision to offer a 1.5 per cent pay increase to ADF personnel, I received a significant number of representations from serving and retired members of the ADF about the appropriateness of that outcome. I am also aware that many of my coalition colleagues—who enjoy very close working relationships with their Defence communities in their own electorates—received similar representations. The critical difference from those opposite is that we all understood that any pay outcome for uniformed personnel could not add further per pressure to this government's efforts to repair the economic damage done to this country by the previous Labor and Labor-Greens governments.

So, after carefully considering the extensive feedback we received on this matter, Andrew Nikolic and I approached the Minister for Defence with what we believed was a sensible and workable solution in the current fiscal environment—as did, I know, many of our colleagues—and that was a two per cent pay increase. Another powerful and ultimately persuasive argument to the minister was the fact that under the last government, the Labor government, the wage increases of ADF uniformed personnel lagged behind those of the APS workforce by up to 25 per cent. We believed, therefore, that this recommendation was not only appropriate but affordable.

The second serious concern I would like to raise in relation to this bill is its stated intent that it:

… ensures fairness in the assessment of annual wage increases for members of the Australian defence force by linking Defence Force pay to the higher of increases in Parliamentary allowance and CPI.

Again I congratulate and acknowledge Senator Lambie for the intent behind it, because I know it is a genuine intent to look after our men and women in uniform; I know this. But the practical consequences of this would be to see the ADF pay actually go backwards, and I will explain why. If ADF personnel's pay were tied to inflation, they would be worse off than under the currently proposed two per cent. That is because politicians and senior public servants have actually had their pay frozen to zero since last year, and the Prime Minister has given absolutely no indication that this decision will be overturned in the foreseeable future, so it is a zero per cent pay increase for parliamentarians. So we have a start point of zero per cent. As Senator Bernardi just said, currently the inflation rate is 1.7 per cent, but forward forecasts are that it will decrease, possibly below 1.5 per cent. So this bill is actually mandating an increase between zero and probably somewhere around 1.5 per cent, which would clearly mandate that ADF pay would in fact go backwards from what is currently proposed. That is, I know, absolutely an unintended consequence. I believe it is certainly not the intent of Senator Lambie that this would happen.

I would now like to address some of the technical detail in aspects of this bill, because I have some background in this area. All of us in this place know that the devil and sometimes further unintended consequences are in the detail of the legislation. Firstly, the explanatory memorandum and second reading speech for the bill appear to show that the bill's intent is to apply a minimum to the 'annual increases' arising from a Workplace Remuneration Arrangement, or WRA, type review. However, the definitions in the bill are far broader than just a minimum increase in the pay. I am sure, again, this is another unintended consequence of the wording of this bill. After a close review of the amendments, I believe it would be totally unworkable, and I will now explain why.

A definition that helps establish this potentially far broader scope than that indicated by Senator Lambie, the Labor Party and the Greens is that the proposed section 58Z defines Defence Force pay as 'salary (within the meaning of Division 2)'. Division 2 is the division actually dealing with the DFRT itself. The impact of that is that the bill affects all salary, not just annual increases. It might not sound significant, but it has wide-ranging and unforeseen impacts on the DFRT and on our service personnel.

A Defence Force pay determination is defined as 'a determination made by the Minister under division 1'—or section 58B—'or by the Defence Force Remuneration Tribunal under Division 2, in relation to Defence Force pay'. The practical implication of this is that the bill can impact on many more determinations than just those dealing with pay adjustments. It might sound innocuous, but I can assure this place that it is far from innocuous. Under existing section 58H(2)(a) of the act, the DFRT shall 'inquire into and determine the salaries and relevant allowances to be paid to members'—I stress 'relevant allowances to be paid to members'. This function is not limited to making 'annual increases' to ADF salaries, as currently determined under the recent Workplace Remuneration Arrangement.

Therefore, by extending to salary determinations, this bill potentially affects all of the DFRT work on salaries and not just the annual adjustments, as per the stated intent of the bill. The implications of that are wide ranging and have yet been unacknowledged by those opposite. For example, the DFRT can and does regularly review and determine individual salary placements and increases applying to employment categories within one of the services or triservice categories such as specialist structures for doctors, dentists, lawyers or our chaplains. This is part of the tribunal's day-to-day business and there is already a statutory requirement to review such determinations at least every two years, under section 58H(6) of the act.

Due to the broad definition of 'defence pay determination', the complex formula in the operative clause of this bill, clause 58ZC, would need to be applied to all of those individual pay reviews, not just the annual salary increase. This would force the tribunal to factor in the calculation of CPI and parliamentary allowances each and every time it makes one of its hundreds of salary determinations, remembering that under the proposed changes the calculation would currently result in lower rates, not higher rates. So proposed section 58ZC would introduce a mandatory formula into all Defence Force pay determinations and not just those suggested in the bill. The tribunal, in making any salary determination, would need to include a calculation that converts any amount it decides upon into a percentage increase for the purposes of working out a minimum salary increase, using the amount and rate comparison set out in the proposed new section 58ZC.

What is important to remember is that when the ADF seeks to adjust its pay structures it does so in two ways. First of all, there are general movements such as annual increases, which must be applied across all structures. But the ADF also makes adjustments to individual categories, which usually occur within the constraints of the existing pay points within the system.

The most recent WRA decision is applied to all salary structures and relevant allowances determined by the tribunal, and this occurs on average every two years. This matter has usually been progressed under section 58KD of the act, which states:

The Tribunal may, in making a determination, give effect to any agreement reached between the Minister, acting on behalf of the Commonwealth, and the Chief of the Defence Force …

The interpretation of this section has always been one that suggests that giving effect to a section 58KD agreement does not give the tribunal scope to vary the agreed pay increase put before it. The tribunal in these circumstances essentially has a choice to say yes or no. In those circumstances, any application of the proposed new section 58ZC would have to occur between the parties agreeing on the matter to be put before the tribunal. I believe this in itself makes this proposal uncertain and unworkable for the Defence Force Remuneration Tribunal.

The bottom line in all of this technical detail, I believe, is that the scope of this bill applies beyond its intended target of annual salary increases. If it were clearly restricted to this intended target of salary alone, the detrimental effect of this bill would be lessened, although the system would become even more complex than it is and, in practicality, unworkable for the DFRT.

Additionally, as the WRA also applies to relevant allowances determined by the tribunal, including service allowances, and there is no requirement to apply clause 58ZC to that part of ADF remuneration, the bill could potentially cause additional distortions to the current ADF remuneration. For example, the service allowance is a stand-alone payment for ADF personnel of major-equivalent ranks and below. However, the service allowance for lieutenant colonel equivalents and above was rolled into their salaries in the 1980s and continues to be a component of these people's salaries. To not apply consistent increases to salary and relevant allowances of this type would cause further salary distortion. I know, Senator Lambie, that was not your intent in this bill, but that would be the practical implication.

If this bill was introduced, I believe the integrity of ADF pay structures for GOPS and GORPS would be impacted on by the application of this new section to individual employment category cases, which is fundamentally the day-to-day work of the tribunal. That is because any increase to individual pay placements would have to match the minimum pay clause, creating a range of additional pay points, distorting relativities between placements and creating distortion of the complete salary structures. With around 1,300 pay points remunerating more than 500 employment categories across all three services, the operation of Senator Lambie's proposed section 58ZC, with its minimum requirement for all adjustments the ADF seeks to make, I believe would completely distort this structure and render it almost unachievable.

In conclusion, I believe that the two per cent increase per annum for our ADF personnel that has already been negotiated is a fair outcome in our current circumstances. It represents the utmost respect that this government has for our defence forces and acknowledges the critical role they perform in ensuring a safe and secure Australia for us all. While I genuinely commend Senator Lambie for this initiative and the intent behind it, I cannot in good conscience support this bill because it would significantly disadvantage our brave men and women in uniform, who dedicate their lives to serving Australia, and their families. I know that was not her intent, but that is what the impact would be. It would make them worse off. For those reasons, I cannot support this bill.